We’ve reported before about how the escalating war for talent in Silicon Valley is effectively creating a kind of arms race between tech companies.

For example, Google is offering employees a 10% pay increase for 2011; companies like About.me are getting acquired days after launch; and job postings in the IT industry are shooting to astronomical levels. Even Google’s Eric Schmidt has admitted to this battle.

Facebook, Google, Zynga and Twitter are hiring like crazy – and this insatiable desire for staff is likely to spill over into other countries. And perhaps the obvious first target outside of the Valley is London: English speaking, and a magnet for existing tech people in Europe working for US multinationals. And the latest to consider extending its reach there is Twitter. Europe is highly attractive to Twitter, since its advertising markets, particularly the UK where Twitter has exploded in adoption, are waiting to be milked.

There have been a few reports indicating that Twitter is also considering Dublin among its potential European headquarters. Admittedly Dublin holds attractions as one of the most corporation tax-friendly environments. Google already has its Euro HQ there, enabling it to perform the so-called “Double Irish” and “Dutch Sandwich” tax arrangements to lower its foreign tax rate to a mere 2.3 per cent.

But there are two main reason’s London may beat out Dublin for Twitter’s European base. The first is London’s high concentration of media companies and global advertising agencies. In that regard London’s Soho – it’s ‘Madison Avenue’ – could trump the tech cluster of startups in the East of London, around the so-called “Silicon Roundabout” area around Old Street (developing since 2008) simply because of the ad agencies.

But the Roundabout, and London, generally – holds other allures outside of ad agency budgets: engineers.

A simple LinkedIn search shows at least 154 ‘Google Engineers’ in London alone. While there a few more in other locations, like Zurich where Google Maps is worked on, London has a high proportion of engineers expert in mobile platforms. Take a meeting in the London office and you may get to walk past the long wall of mobile phone handsets Google uses for testing its latest software on.

Thus, London has the ‘double whammy’ of the advertising agencies and engineering talent which Twitter is likely to want to steal away from Google’s vast London office near Victoria station.

But what about Facebook I hear you cry? Well, while Facebook has a vibrant regular developers Garage event, it doesn’t have any significant engineer presence – yet.

Of course, that could well change, should the Talent Wars continue to spread far beyond the Valley…